Defects in Class Notice and Class Definition Do Not Render Settlement Agreement Invalid (Seagate)

Class Action Monitor
2009-10-15

The California Court of Appeal vacated a trial court's order approving a settlement agreement and class notice. Alt-hough the settlement was fair, adequate and reasonable, the class provided inadequate notice of the scope of the class.

Sara Cho filed a class action complaint against Seagate Technology Holdings Inc. alleging that Seagate falsely overstated the storage capacity of its computer hard drives. The parties reached a settlement agreement. Seagate agreed not to challenge an application for attorneys' fees of up to $1.75 million.

The trial court approved the settlement agreement. Class counsel was awarded $1.75 million in attorneys' fees. Class member David Klausner appealed.

Challenge to fairness of settlement agreement fails.

The court of appeal found that the settlement agreement was fair, adequate and reasonable. There was no evidence of collusion or unfairness as Klausner contended.

Further, the provision for attorneys' fees was reasonable. Seagate made no unconditional agreement to pay attorneys' fees with no evaluation of the fees. Cho had to prove to the court the reasonableness of any requested fees.

The court of appeal determined that the absence of a common fund did not suggest collusion or unfairness. Klausner did not provide any authority for his contention that a definite fund had to be established.

The court of appeal found that approval of the settlement agreement was not an abuse of discretion. The settlement was reached after arms length negotiations and vigorous litigation over two years. The trial court made a specific finding that Cho faced considerable risk in proceeding to trial and the class recovery was significant in light of that risk.

The court of appeal concluded that the class notice was unclear as to whether an indirect purchaser was included in the class. The class definition and class notice had the potential to lead some of those who purchased from an authorized retailer or authorized distributor to conclude that they were not class members.

Because the error in the class definition and class notice was not fatal, the district court vacated and remanded for the purpose of clarifying the scope of the class and giving new notice of the settlement.